What Legal Issues are Involved in Winning the Lottery?

243 days ago by
141 comments

By:  LINDSEY O’NEILL, ESQ

The Georgia couple who just won the $270 Million lottery seem to be the media favorite right now for the nicest couple to ever win the lottery!  With big lottery jackpots like this, many of us wonder just what it would be like to actually win the lottery….  Since this is a legal website, I started wondering about the legal aspects of winning the lottery.  Actually, there are many legal issues lottery winners must address at one point or another.  Know this – if you win the lottery, it is highly recommended you consult with an attorney prior to claiming the winning ticket so that the various legal issues can be addressed and winning the lottery can be a good thing …. and not turn into nightmare.  Some of the legal issues include the following:

1.  What about privacy and the identity of lottery winners?  Most winners’ names are published in the media, which can translate into a loss of privacy previously enjoyed.  Some argue that the winners’ names should be published so that the public can be assured the state isn’t just keeping the money.  Others argue that the celebrity created by a lottery winning can have negative consequences on lottery winners in terms of unwanted publicity.  Depending on the circumstances, you may be able to protect your privacy by the way in which you choose to recieve the winnings.  For example, there may be legal entities that can be created to in an effort to help mask your identity and save you from a fifteen-minutes-of-fame-gone-wild situation.

2.  What about taxes on the winnings?  Lottery winnings are considered taxable income.  Whether received as a lump-sum payment or in multiple annual payments, the winnings are taxed as received.  A trust may be a good option to hold the lottery winnings.  Some of the tax advantages of a trust may include avoiding probate of the lottery proceeds upon death of the winner and minimizing taxes on the estate.

3.  How must lottery winnings be split if the ticket was purchased jointly or by a pool of individuals?  Many times lottery tickets are purchased with pooled funds from friends or colleagues.  Was there verbal agreement to share the winnings with another person?  Can that agreement be enforced under applicable state laws? (Some states prohibit contracts for gambling.)  If multiple individuals own the winning ticket, a partnership may be a good entity to form to receive the winnings on behalf of all of the partners, rather than one individual receiving the checks.

4.  Must the winner share the winnings with a spouse or a live-in significant other?  Lottery money may be considered a marital property acquired during the marriage, particularly if the ticket was purchased with marital funds, and may be subject to division upon divorce.   Even if the parties are not married, but are significant-others who live together, share living expenses, and have a regular practice of buying lottery tickets each week, there may be a joint-right to the winnings.  Courts typically focus on the facts and circumstances surrounding the particular situation including the intent and understanding of the parties in order to ascertain the legal rights of the individuals.

5.  Can the winner(s) gift some of the money to family and/or friends?   A lottery winner can make a gift of some of the lottery winnings up to the annual exclusion limit without incurring gift tax liability.  Making annual gifts in this fashion is a good way to share the winnings with family members and friends while mitigating the tax implications.  Gifts made to another person’s education or medical care may have favorable tax treatment as well.  Finally, gifts to charities can have certain attractive tax advantages for the lottery winner.

When a person wins the lottery, the advice and consultation of an experienced estate planning and tax attorney can be a huge advantage when dealing with the various legal and related issues.  Ideally, a lawyer should be consulted prior to claiming the lottery prize so that the appropriate legal mechanisms can be put in place to minimize the hassles that may otherwise be associated with collecting the winnings.   Use the attorney locator service on LawInfo’s home page to find an attorney in your area:   http://www.lawinfo.com/.

For more information see also:  Estate Planning, Asset Protection Attorneys, Taxation, Partnership, Find a Lawyer.

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  • Jennifer

    I wouldn’t bother with an attorney, if you are single and not married or living with a b/f/ g/f deal.
    As for taxes are taken out at the lottery headquarters and it’s a longer process then what one may think. attorney is there to help so your spouse and relationship partners isn’t there with their attorney seeking your winnings. As for name being publish it really depends on the state you live in where I am to claim a winning ticket I cant be anonymous, but I wouldn’t care for my name to be published….

    The only thing I would be worried about winning a large sum is stalkers at the headquarters as the winners in Jan said they hired a body guard because they had someone follow them.

  • Jake

    My boss made everyone at work put in $2 to buy tickets for Tuesday night’s drawing. Today he asked if anyone wanted to chip in and buy tickets for Friday’s drawing…and no one responded. This is like the time I worked at Macy’s and my manager was always making us donate to United Way. If we didn’t donate $50 or more we would not be seen as a team player and our review the following week would be bad. I don’t want to share my lottery winnings with my boss or some of the people at my work. I was hoping to win it by myself. I have heard countless stories of problems arising in lottery pools. My boss kept saying that if any of us won that we should buy his company so we can boss him around. If I won and he asked me to buy his company I would say “your company is not worth buying!”. Oh how much I wish I could say that to him.

  • Steve

    That is correct, BUT the 25% federal tax rate is the MINIMUM required to be deducted at the time of payout. Depending on your winnings and personal deductions, you could easily find yourself boosted up to the 39.6% federal tax bracket meaning you would have to pay up to an additional 14.6%. Additional, the IRS could hit you with penalties for failure to submit timely tax payments throughout the calendar year. So you may need to make advance tax payments. This is why you immediately hire a good tax attorney.

  • Steve

    Hire an attorney and hope for the best. This is why it is strongly advised for multiple winners sharing the same ticket to have a written agreement.

  • Steve

    People who refuse to retain and follow the advice of tax attorneys, financial planners, and or wealth managers, are the ones that end up broke in a matter of a few years. The attorney is far more useful than just protecting your privacy.

  • twowheelerf4i@aol.com

    I know I’m correct, I’m an accountant. The difference between the top tax rate and the initial amount withheld at the payout for federal taxes would not be due until tax filings for the year the winnings are realized. Taxes are not paid on lottery winnings throughout the calendar year as they are for a business. Penalties are not a factor in the point I was making which is that the after taxes winnings would not be reduced to only 25%. Its simple math, payout minus top marginal rate does not equal 25%

  • Randynewnum

    In my case it is for 26 years and you have to make a will just for that money from the lottery and it cannot be changed unless everybody in the will is now deceased.

  • Tonisandifer

     your boss can be fired for that. FYI call the corporate office and get him fired.

  • Wcvoda

    NO it is not a fact..  You can collect the money. But SSI rules do not permit payment of SSI benefits for any month in which a claimant has assets of $2000.00 or more.  Lottery winnings are assets. 

  • PAYYOURDEBT

    YOU ARE OBVIOUSLY ONE OF THOSE “NO FEDERAL RIGHT TO COLLECT INCOME TAX” NUTS.  YOU DON’T KNOW THE TAX LAW .  YOU ARE A PERFECT EXAMPLE OF HOW MUCH DAMAGE A LITTLE’ KNOWLEDGE CAN DO.  JUST TRY AVOIDING PAYING INCOME TAXES.  THERE ISN’T A COURT  IN THE COUNTRY THAT HAS FOUND YOUR POSITION CREDIBLE..  EVER.   

  • GUEST

    SEE FIRST ENTRY REPLY TO HOOTOWL@HUGHES.NET  ON THIS PAGE. IT APPLIES TO YOU, TOO.

  • GUEST

    AND YOU WILL LOSE YOUR LAWSUIT.  ALWAYS. INEVERY COURT IN THIS LAND.

  • GUEST

    IF YOU ARE REFERRING TO SOCIAL SECURITY BENEFITS, THEN NO,WINNING A LOTTERY HAS ABSOLUTELY NO EFFECT ON THEM.  IT WOULD EFFECT YOUR SSI BENEFITS. THOSE ARE TWO SEPARATE FEDERAL GOVERNMENT PROGRAMS WITH DIFFERENT PURPOSES ,RULES AND FUNDING SOURCES.

  • Guest

    I wouldn’t give cash to anyone because it would mean they would expect the same amount every year. I would buy them something and tell them that’s all you are getting, so sell it or use it.

  • Willievok

    We live in a country that uses our money to feed the lazy people, so that’s why they have to tax us because those people don’t work since they know they can live a good life with our tax money.

  • KaraokeKimea

    Sent away from lottery office,and havent collected winnings. What if something happens to me before I can collect? Who will get the money?

  • guest

    You need the ticket and if it has your name signed already, and the time to collect has expire you lose any right to the money because you have a time limit to collect or lose out.

  • Willievok

    You still have to pay taxes in the State you bought the ticket, so moving away won’t prevent them from collecting the tax.

  • Willievok

    Throw the winning ticket in the trash, but let me know where you live one day before you do it.

  • Willievok

    Yes!

  • sandman

    are you 14 and writing this from your two wheeler? It’s a very naive approach your taking. Think things out more.

  • sandman

    go to the police.

  • hope to win

    If your on social security and you win the lottery. Will you loose your monthly check?

  • URIEGAS

    Why worry, if you win since you’ll be rich and lose your SSI, you are are on it. Regular social security won’t be lost.

  • http://www.facebook.com/profile.php?id=100003634556311 Kishmir Intuches

    Say hello to Wesley Snipes.

  • harleysangel010@aol.com

    if I win in Dec 2012 but dont claim till february 2013, what year do I incur the tax liability on?

  • Ika Musume

    Collect the money and get off ssi.

  • Ika Musume

    If you win the lottery you can live like a King and let go of any benefits you have that your never paid by getting such benefits such as food stamps or ssi.

  • http://www.redconvoy.com redconvoy

    If you’re on SSI and you win millions, do you really need state issued money? You could pay for a better health insurance plan.

  • http://www.redconvoy.com redconvoy

    2013 I think

  • http://www.redconvoy.com redconvoy

    They take out 25 percent. You have to pay the rest. If you don’t, the IRS will audit you.

  • http://www.redconvoy.com redconvoy

    This person sounds like a selfish control freak. Go to the police and consult an attorney.

  • http://www.redconvoy.com redconvoy

    If you are retired above the retirement age and you win the lottery, I don’t think so. If you are disabled or collect retirement benefits before the full retirement age, yes, you could lose it because you have to report that income. After full retirement age (as set by SSA) as I understand it, you could make as much as you want.

  • http://www.redconvoy.com redconvoy

    That’s not for you to decide. If you want to live that way, go ahead, but don’t begrudge someone else their right to keep all that money. You are going to learn in life that you cannot control what people do. It doesn’t end well.

  • tax payer

    You can be a millionaire and you don’t lose your social security pension except SSI.

  • http://www.redconvoy.com redconvoy

    No they don’t, but they are issed an ITIN to pay. If that were the case, they would not be allowed in the casinos either.

  • http://www.redconvoy.com redconvoy

    I was only referring to the pension, but you would lose it before the full retirement age if you are on disability or you took it early. You could only earn so much until your full retirement. If you win, you could still collect at full retirement, not before.

  • tax payer

    Before you give them the money you tell them it’s a one time deal and to not expect anymore. Move away and don’t tell anyone where you have moved, and change your name, when you move.

  • tax payer

    If you win and divorce your husband he would still get part of the money since you were married, when you won the money. It’s called Community Property. If you win after the divorce he gets ZERO.

  • tax payer

    You can do that, if you have not signed your ticket, but the Government will want to know how you ended up with five million dollars. You would have to do a lot of explaining, so keep the prize money and pay your share of the tax, and you’ll end up with 20 million dollars are more.

  • tax payer

    They have to pay the taxes, but no one has to know you gave them the money. Cash is cash and no record is there to prove you gave them the money. You have been taxed already for that money and our stupid Government wants to tax money that has been taxed already. They our ( Government ) are thieves.

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